The Relation Between Investor Uncertainty and Market Reactions to Earnings Announcements: Evidence from the Property-Casualty Insurance Industry in the USA


  • Theodore E. Christensen,

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  • Jennifer J. Gaver,

  • Pamela S. Stuerke

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      The authors are respectively from Brigham Young University, the University of Georgia and the University of Rhode Island. They appreciate helpful comments from Nick Fessler, Julia Grant, Ajai Singh and participants at the Case Western Reserve University workshop and the 2000 Midwest Regional AAA meetings. They are grateful to I/B/E/S International Inc. for providing earnings forecast data, available through the Institutional Brokers Estimate System. These data have been provided as a part of their broad academic program to encourage earnings expectation research. They thank Enya He and Andre Liebenberg for generously providing research assistance.

Theodore E. Christensen, School of Accountancy & Information Systems, Marriott School of Management, Brigham Young University, 540 N. Eldon Tanner Building, Provo, UT 84602-3100, USA.


Abstract:  This paper investigates the relationship between investor uncertainty, gauged by properties of analysts’ forecasts, and the stock market response to earnings. We find that uncertainty is best characterized by a comprehensive measure recently proposed by Barron, Kim, Lim and Stevens (1998), BKLS. The BKLS measure is related to uncertainty-inducing events, as well as factors that affect the difficulty faced by analysts in forecasting earnings. We conclude that, first, pre-disclosure uncertainty is a significant determinant of the price reaction to the earnings release, and second, BKLS is a more comprehensive measure of uncertainty than simple dispersion.